RIVERSIDE COUNTY: $4.5 million investing scam uncovered, DA says

SAFE INVESTING

The Securities and Exchange Commission advises that when you consider your next investment opportunity, you should start with these five questions:

• Is the seller licensed?

• Is the investment registered?

• How do the risks compare with the potential rewards?

• Do I understand the investment?

• Where can I turn for help?

RED FLAGS

Here are some warning signs that the SEC says could indicate you're being scammed, especially as part of a Ponzi scheme:

High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any "guaranteed" investment opportunity.

Overly consistent returns. Investment values tend to go up and down over time, especially those offering potentially high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.

Unregistered investments. Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company's management, products, services and finances.

Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.

Secretive and/or complex strategies. Avoid investments you do not understand, or for which you cannot get complete information.

Issues with paperwork. Do not accept excuses regarding why you cannot review information about an investment in writing. Also, account statement errors and inconsistencies may be signs that funds are not being invested as promised.

Difficulty receiving payments. Be suspicious if you do not receive a payment or have difficulty cashing out your investment. Keep in mind that Ponzi scheme promoters routinely encourage participants to "roll over" investments and sometimes promise returns offering even higher returns on the amount rolled over.

For about the past decade, accountant Lawrence Paul “Larry” Stephens of Riverside did clients’ taxes, handled their bookkeeping and, in some cases, brought them investment opportunities.

But, authorities say, it was all a facade.

Stephens, as it turned out, didn’t have an accounting license, and his Chino Hills-based firm was placed on probation last year.

Then in January, the Riverside County District Attorney’s Office began investigating his investment offers, and determined they were scams that resembled a Ponzi scheme.

Stephens, 52, was arrested Saturday, April 30, on suspicion of defrauding six people out of almost $4.5 million. He is charged with five felony counts of grand theft and five felony counts of securities fraud in connection with investment schemes carried out between 2008 and 2011, according to court documents.

The victims were four individuals and a couple, who lost anywhere from $125,000 to just over $2.5 million each. Their cities of residence were not available.

Stephens remained in jail Monday, with bail set at $4.475 million – mirroring what he is alleged to have stolen. He is scheduled to be arraigned Tuesday.

Stephens built some of the victims’ trust by working with them at Brylaw Accounting Firm, which was licensed in 2006. In February 2015, however, the California Board of Accountancy found that Stephens was using somebody else’s certified public accountant license to operate the firm, records show. Brylaw was placed on probation in September.

The firm remains open. A person who answered the phone Monday afternoon said no one was available to comment on the allegations against Stephens.

The scams were brought to the attention of the Riverside County District Attorney’s Office in January by a couple who gave Stephens $200,000 for what they thought was an investment, according to an affidavit written by DA’s investigator Paul Edwards asking a judge to issue an arrest warrant.

Stephens contacted the couple in December 2011, asking them to invest in a company that was set to go public in January 2012, the affidavit said. He promised them that “there would be no risk involved” because, if the company did not go public, the money would be returned to them.

They were traveling in India at the time, but Stephens said he needed the money within three days, so they wired the money to Stephens’ bank account. They never received share certificates or any documents relating to them buying shares in the company, the affidavit said. And the initial public offering – or IPO – never happened.

“They kept asking for their money back and were given excuses,” Edwards wrote.

Edwards probed Stephens’ bank account and found that after he received the couple’s money, he made out checks to other people and companies.

“The payments suggested a Ponzi scheme,” Edwards wrote in the declaration.

A Ponzi scheme is a type of fraud in which a scammer promises victims returns on their investment – often making too-good-to-be-true promises – then pays them with money brought in through new victims.

The checks Stephens wrote with the couple’s money led Edwards to find other victims.

Some had invested in what Stephens called the “Black Canyon Project” that involved a construction company that he said had a contract to build a toll road from I-15 to the 241, the affidavit said.

The victims reported receiving monthly interest payments that suddenly stopped. Their principal investments – all more than $100,000 – were never returned, the affidavit said.

One person who invested $1.5 million in the Black Canyon Project received monthly interest payments “until Stephens stopped paying and started giving excuses as to why he couldn’t pay,” Edwards wrote.

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